California switches to winter gasoline to ease cost

The shortages underscore California's relative isolation from the rest of the nation in terms of energy. The state is the largest fuel market in the nation, but its strict production rules make importing gasoline from other areas difficult; and there are no fuel pipelines connecting it to markets across the Rocky Mountains.

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By JIM CARLTON and ERICA ORDEN

SAN FRANCISCO -- Experts predict California's skyrocketing
gasoline prices will start easing in the next few days, after
an idled refinery resumed production and Gov.
Jerry Brown ordered refineries be allowed to make winter-blend
gasoline earlier than usual.

Even so, some are questioning whether the price surge was a
result of market manipulation, and Sen. Dianne Feinstein has
called for a government investigation into the matter.

The call came as California gas prices have jumped 50
cents/gal over the past week to a statewide average of
$4.67/gal for regular unleaded gasoline Monday. That compares
with $4.17/gal a week ago and $3.89 nationally, according to
estimates by AAA, the national automobile club.

The increase was largely the result of oil-supply problems
caused by ExxonMobils big refinery in Torrance, Calif., losing
power and going out of service, which compounded disruptions
from an Aug. 6 fire at a Chevron Corp. refinery in Richmond,
Calif., said Trilby Lundberg, president of the Lundberg Survey,
which tracks gasoline prices nationwide.

ExxonMobil said it had fully restored production in Torrance
as of Friday, but production still hasn't been fully restored
at the Chevron refinery in Richmond. Both refineries produce a
special formulation of gasoline that meets California's
stringent air-quality standards.

Ms. Lundberg predicted gasoline prices would start easing in
California over the next several days, due to the refinery going back on line.

In addition, Mr. Brown called Sunday for production of the
winter-blend gas that is used when ozone-causing smog isn't
such a problem. Winter gasoline usually isn't released until
after Oct. 31.

The shortages underscore California's relative isolation
from the rest of the nation in terms of energy. The state is
the largest fuel market in the nation, but its strict
production rules make importing gasoline from other areas
difficult; and there are no fuel pipelines connecting it to
markets across the Rocky Mountains.

Also, because its 14 refineries are operating near the
limits of their capacity, disruptions can quickly cause
shortages.

Other refineries outside California, including along the
Gulf Coast, could make the cleaner-burning blend of gasoline
that the state requires in a critical shortage, provided a
worthwhile price, said Ms. Lundberg.

They would have to be incentivized to spend more to
make our formula and ship it here, she said.

Despite the state's known production limits and their effect
on prices, an outcry over the increase erupted over the
weekend. In a letter to the Federal Trade Commission Sunday,
Ms. Feinstein, a Democrat, said California motorists are facing
the highest gas prices and longest commutes in the country and
that a probe is needed to make sure the price hikes are
legitimate.

California's consumers are all too familiar with
energy price spikes, which cannot be explained by market
fundamentals, and which turn out years later to have been the
result of malicious and manipulative trading activity,
Ms. Feinstein said in her letter to FTC chairman Jon
Leibowitz.

In a statement, Mr. Leibowitz said, We do not confirm
investigations, but we do have enormous respect for Sen.
Feinstein.

The Wall Street Journal

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